The former Portsmouth owner Milan Mandaric paid $145,000 into a Monaco bank account to do something "special" for his then manager, Harry Redknapp, as a "friend", not as a bonus on Redknapp's salary, Mandaric told a court on Monday. Giving evidence for the first time at Southwark Crown Court in his and Redknapp's trial on charges of failing to pay tax allegedly due on that and a further payment of $150,000, Mandaric said he paid the money to Redknapp as "an expansion of our togetherness, from being football people into friendship territory".

Over two hours in which he was questioned by his own defending barrister, Ken Macdonald QC, Mandaric said he and Redknapp had grown close beyond their professional relationship at Portsmouth, where Redknapp joined as director of football on 29 August 2001, then became the club's manager on 27 May 2002. The court heard that Redknapp's salary over three years at Portsmouth, then in the Championship, was £1.775m, which increased to £3.025m when he became manager, a contract backdated to become effective from 18 March 2002.

Following the club's promotion to the Premier League in May 2003, which Mandaric described as "a dream", in March 2004 Redknapp's salary was increased by a further £1.19m to approximately £4.2m, again over three years.

Mandaric said that quite quickly after Redknapp joined the club, until their relationship soured when the manager left for Southampton, they had a very close relationship and became family friends. They went on holiday together, Mandaric said, met up with their wives and spent a New Year's Eve together at a hotel in the New Forest. He also said that he went to Redknapp's house to play with the dogs in his garden.

"We developed a friendship," Mandaric said. "It is great to have a professional relationship in football and I always had this with managers. But I never had a friendship as I had with Harry. We expanded our friendship over and above football business. He was a special guy, he was a special manager but above all he was a special friend."

Mandaric, currently owner of the League One club Sheffield Wednesday, and Redknapp, Tottenham Hotspur's current manager, are accused of two counts of cheating the public revenue. The prosecution alleges that the $295,000, paid into a Monaco bank account with $145,000 in May 2002 and $150,000 in April 2004, was in connection with Redknapp's employment and as a reward for his services, and that tax should therefore have been paid on it. Mandaric repeatedly denied that the payments were due to Redknapp under his contract, as the manager's bonus for the profit Portsmouth made when they sold the striker Peter Crouch to Aston Villa in March 2002. He said Redknapp was due only 5% of the fee Portsmouth received for Crouch, not 10%, for which Redknapp had asked, and Mandaric said he had refused to pay the extra.

Instead, Mandaric said, he paid $145,000 into the account in Redknapp's name as "seed money" to build Redknapp an investment portfolio, "to do something special for Harry", as a friend. The further $150,000 was paid in 2004, Mandaric said, because the investments via Monaco had lost their value. Mandaric said he had become "embarrassed" by those losses, which had become public, so he replenished the account with $100,000, and provided Redknapp also with a "nominal profit" of $50,000.